Citi, Bank of America, Wells Fargo gain on assurances; GM up with market; Mylan rises on drug nod

By Kenneth Lim

Boston, Feb. 25 - Financials improved slightly on Wednesday as overall activity picked up in the convertible market.

Banking names Citigroup, Inc., Bank of America Corp. and Wells Fargo & Co. all gained after policymakers pledged support for the industry and eased fears of nationalization.

General Motors Corp. also gained in line with the broader equity markets and on higher confidence that the U.S. government will not allow the automaker to fall into bankruptcy.

Mylan Inc. also ticked up after the company announced that an HIV treatment had been approved for international markets.

The convertible market in general saw volumes increase a little from the day before, market sources said.

"It was busy in the morning, died a little at midday, then picked up again in the afternoon," a convertible desk analyst said.

A convertible trader said volumes remained thin despite the pickup. Prices also seemed to be hovering in place.

"Prices have been in a fairly tight range lately," the trader said. "Nobody's got any sense of direction right now. When the markets move a lot guys just gamma trade, guys just trade the stocks rather than the bonds."

The market's lack of direction could be due to a drying up of momentum and the drought in the primary market, the trader said.

"It could be everything got a little bit tired from the rally in January," the trader said. "And there's still no new paper."

Banks improve

Financials continued to recover slightly on Wednesday on the back of assurances by policymakers of further support for the industry.

New York-based Citigroup's 6.5% convertible preferred reached as high as 11 but ended flat at 10 outright. Its common stock closed at $2.52, down by 3.08% or $0.08.

Charlotte, N.C-based Bank of America's 7.25% convertible preferred rose about 2 points to 345 outright, while its common stock rose 9.09% or $0.43 to close at $5.16.

San Francisco-based Wells Fargo saw its 7.5% convertible preferreds gained about 2.5 points outright to trade at 460. The common stock finished up by 2.99% or $0.39 to close at $13.44.

"I see a lot of bank stocks are starting to rally again hard this afternoon," a sellside convertible trader said. "But I don't know what bank paper I would even look at."

A sellside convertible analyst said investors may have been heartened by comments from the U.S. government during the day.

Federal Reserve chairman Ben Bernanke told the House Financial Services Committee Wednesday that there are no plans in which the government "seizes the bank and zeros out the shareholders and begins to manage and run the bank."

But he said the government could increase its stake in embattled Citigroup and other banks. The U.S. Treasury on Wednesday began "stress-testing" the nation's biggest banks to determine which ones will need additional assistance.

The Treasury also said funds from a $700 billion bank bailout program will be immediately available to banks that need but cannot raise financing from the private sector. The funds will be used to buy seven-year 9% mandatory convertible preferred shares.

"There's a bit of reassurance there, the government is willing to put up capital to support the banks and they don't want to nationalize them, which could wipe out the preferreds," the analyst said. "I think there's still concern about the dilution of the stock and the dividend, but those are secondary to losing everything."

GM gains speech

General Motors' convertible bonds rose outright with their underlying stock on Wednesday as confidence about the automaker's future increased.

The General Motors 1.5% convertible due 2009 gained a point to trade at 11 outright. The 5.25% convertible due 2032 changed hands at 2.65, while the 6.25% convertible due 2033 was seen at 2.85, both adding ¼ point outright. General Motors common stock rose 14.86% or $0.33 to close at $2.55 Wednesday.

The Detroit-based company is an automaker.

"They were up with the stock," a convertible trader said. "I don't know of anything major, it's probably the speech last night when the president said he won't turn his back on Detroit, or something like that."

In his address to Congress, President Barack Obama on Tuesday said the government cannot "walk away" from the auto industry because "millions of jobs" and "scores of communities" depend on it.

Mylan gains on drug approval

Mylan's 1.25% convertible due 2012 was up about a point at 87, while its 3.75% convertible due 2015 traded at 111, all versus a stock price of $13.

Mylan common stock closed at $13.09, up by 1.08% or $0.14.

Canonsburg, Pa.-based Mylan is a generic drug maker.

"I think there was a rally early on because of the WHO approval for generic [HIV drug] Kaletra, but it kind of struggled the rest of the day, weighed down by the rest of the market," a sellside analyst said. "It could be a potentially substantial business for them in developing markets, so it's definitely good news."

Mylan said Wednesday that the World Health Organization approved a generic version of Abbott Laboratories' heat-stable HIV drug Kaletra, which will allow the generic pills to be sold in many developing countries. Mylan's 71.5% subsidiary Matrix Laboratories Ltd. of India makes the generic drug.

Mentioned in this article

Bank of America Corp. NYSE: BAC

Citigroup, Inc. NYSE: C

General Motors Corp. NYSE: GM

Mylan Inc. Nasdaq: MYL

Wells Fargo & Co. NYSE: WFC

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